Small business owners, including sole traders, may be inclined to handle most of their payments through a personal bank account. It’s convenient; you don’t need to go through the hassle of opening a new account, but is it the smartest approach? Running a business involves all measures of financial transactions, which can be difficult to keep track of when managing your money through a regular bank account. Switching to a business account makes a lot of sense – but is it worth the extra hassle of managing two separate accounts?
Keep All Business Transactions In One Place
When you use a personal account to run your business, you end up mixing personal and business transactions. Your expenses for office energy bills come out of the same account that pays for your home energy bills and mortgage. It’s a complete mess, making it harder to track all of your business comings and goings for tax purposes.
If you open a business account, you keep everything separate.
The account only shows business transactions, meaning it’s quick and easy to see how money moves throughout your company. It also tracks your income and outgoings, which is perfect for filing non-stressful tax returns.
Connect With Accounting Applications
Furthermore, some business bank accounts will connect with your accounting software. This means that every transaction gets automatically recorded in your balance sheets. You never miss anything or type in a value incorrectly; it makes it impossible to make costly small business mistakes.
More to the point, compatibility with accounting software also means you could create and submit business tax returns at the click of a button. Many software solutions will do this for you after you provide all the financial details. With a bank account that connects to the software, it’s all automated.
Clear Business Financial Forecasts
The other downside of having a personal bank account connected to your business is that it’s impossible to generate any financial forecasts. When you shift your business finances to a separate account, you get an overview of everything in one place. Not only can you see how much money you’re making/spending, but you also see projections based on things like bills and regular expenses.
It’s far easier to see a clear forecast for the end of the month, letting you manage your cash flow and determine if you’re able to meet your expense demands before more money comes in.
Provide Multiple Cards To Employees
You wouldn’t give your employees your personal bank card – that would be silly. Instead, if they pay for things that end up going down as business expenses, they do so from their personal accounts. It’s then a case of recording the receipt and you reimbursing them.
Business accounts take multiple steps out of this process because you can order numerous cards for your company. Simply hand your employee the card when they need to buy something for the business, and it comes out of the company account.
Despite the convenience of having your personal account tied to your business, it’s not a smart move. Business accounts offer more flexibility and purpose, particularly if you deal with lots of expenses and have employees to pay.